I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

President Obama Was Right About Those Chinese Manufacturing Jobs: They're Never Coming Back

From the Presidential debate last night, something that President Obama said about all those manufacturing jobs that have been shifted off to China. You know the sort of thing, those assembly lines at Foxconn making stuff for Apple and Dell. They’re just not ever going to come back to the US those jobs. It’s possible that the manufacturing itself will but the jobs are gone, gone forever.

CROWLEY: Mr. President, we have a really short time for a quick discussion here.

iPad, the Macs, the iPhones, they are all manufactured in China. One of the major reasons is labor is so much cheaper here. How do you convince a great American company to bring that manufacturing back here?

Obama’s answer (in part) was this:

Candy, there are some jobs that are not going to come back. Because they are low wage, low skill jobs.

I’m not interested in the slightest about who won what. I’m a foreigner and American politics isn’t my subject. But that simple point about some of those offshored jobs is one I’ve made several times here. Worth pointing out again why those jobs are never coming back. And it’s nothing at all to do with corporate taxation, corporate greed, Chinese currency manipulation: it’s all entirely about the link between labour productivity and wages.

Imagine that we can have two ways of making iPhones and iPads. One way is to have huge numbers of people putting them together by hand. The other way is to use large amounts of machinery to do the work. There’s nothing either right or wrong about either way of doing it. And which gets used will depend upon the relative costs of machinery and labour.

We can imagine a world in which the machines to do the work cost $100 a piece (that is, that the cost of machinery per phone is $100) and lots of workers is $10 a phone. We can also imagine the reverse, where machinery costs $10 per phone and the labour $100. Which system we decide to actually use will depend upon those relative costs: for of course we’re going to sell more phones the cheaper they are, make more profit the lower we can get our costs.

Currently the system Apple uses is closer to the $10 of labour one. It’s actually around $8 or so that they spend on the assembly of an iPhone. And they do this because the cost of employing machinery to do this work would be higher. But let’s stick with our $10 just to keep the numbers the same.

Now, if we did that same work the same way in the US then that labour would cost more like the $100. If we used USA workers making the usual US wages and we got them to make the iPhone in exactly the same way it is done in China then it would cost up and around that $100 figure to do so (this is not an accurate figure but it’s good enough for our purposes here). Now we might rather like to have 250,000 jobs in the US paying good US wages to make iPhones. But it just isn’t going to happen: those jobs are never coming back. For the cost of using machinery to make them instead of people is lower than that $100.

It is true that we don’t actually know what the cost of automating the Foxconn assembly lines would be. But we can get a pretty good estimate. Or at least one that shows that it’s rather lower than the cost of employing US labour. Currently the standard Foxconn worker is making around $6,000 a year. This number has risen very strongly in recent years. It’s up from around $1,500 a year at the turn of the millennium (if anything, it has risen more than this). At standard US wage rates for electronic assembly a US worker makes around $27,000 a year. So, if labour productivity is the same in each place (which we are assuming it is, because we’re saying each will have the same amount of machinery and mechanisation) then clearly the US option is more expensive. But how can we tell that mechanisation is cheaper than using US workers? Quite simple really: Foxconn has already announced that it is going to install up to 1 million robots over the next three years. That’s one robot for each and every one of its current workers.

It is also proof that the turning point between employing people and employing machines is around and about that $6,000 a year. That’s the point at which you stop using labour to build things and start using machines to do so. You will note that this is well below the $27,000 necessary to employ US workers.

So, even if the manufacturing of Apple products were to return to the US there wouldn’t be those 250,000 jobs (roughly how many of Foxconn’s people work on Apple products) coming with them. There might be jobs for 250,000 robots but that’s not the same thing at all.

BTW, saying that US labour is more productive than Chinese therefore it won’t work this way is nonsense. For the reason US labour is more productive is because it uses more capital, more machinery. That is, the reason US labour is more productive is because there are more machines and fewer jobs. If you prefer, the reason the jobs won’t come back is precisely because US labour is more productive.

The numbers I’ve used here are only examples, they’re not the accurate costs at all. But the point being illustrated is still entirely true: those manufacturing jobs are not coming back to the US, just as the President said. The manufacturing could come back but even then the jobs wouldn’t. For there are two ways of making Apple products, the only two ways that anyone will use in the real world that is. One is to use 250,000 people to build them in China. The other is to use machines to build them in America. Our universe simply does not contain a viable alternative which uses 250,000 people being paid US wages to do the work.

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I do notice the ongrowing labour strategic management agenda of the so called European and American investors, investing on “sweat shirts – market”, that is quite obviously making the poorest people of Africa and Asia – the “modern – sllaves” of today, living under forced labour and no legal based labour correlations. This is what I call, “The Hatred of the Whites” towards the Third World! In making sure that the “poor children”, who are the weakest of humanity, that are incapable of providing “food and shelter” for themselves, are being “dominated” by the heartless investors of the great great modern world!

Apple products are made in China. Generally, these are considered to be both attractive and high quality (you may differ on value for money.) Similar for many other manufacturers. At that point your argument falls flat on its face.

Do you think we should impose “legal based labour correlations (sic)” on other countries? Enforce minimum working ages? You seem to. Okay, then, how should we go about it? Gunboat diplomacy or direct colonial rule?

People want to work in what we consider to be appalling conditions for minimal pay because it is better than 12 hours every day of manual or animal assisted subsistence peasantry. Or starving in the streets.

The best way to improve conditions in the vast majority of your “great great modern world” is to allow developing nations to institutionalise (in social rather than necessarily organisational terms) their industrial revolution. Unfortunately, this isn’t pretty. Read Dickens on C19 London, for example. Or Orwell’s “Down and Out in Paris and London”. We got over it. They will. And much, much faster.